A digital nomad in her natural environment (Bali I think). Smartphones work just fine for people like these, they never had it so good

The smartphone epitomises what has changed about the world of work, and a whole bunch of articles this last week have reminded me that it has changed, in my view adversely for many workers. I am beginning to understand why so many people are pissed off at the lower end of the employment spectrum. At the middle and top end, they are having a blast – the smartphone is emancipation of the four hour work week, the contractor, the digital nomad and all that. All these dudes are whooping it up and going “wassup, you never had it so good?”. Tim Ferris’s The 4 Hour Work Week is the bible for this crowd. . Back in the real world, it’s the lumpenproletariat taking the shaft, along with a lot of disrespect through what has become a tool of oppression.

How low end work used to be in the 1960s to 1980s

The world of work in the analogue world had a lot of hazard and unpleasantness in it, there was overt racism and discrimination is many areas, and humans did a lot of physical work which was terrible for their health. Some of the improvements in longevity and the narrowing of the expected lifespan between men and women of recent years has been due to running some of these jobs out of town. My Dad worked with glass bottling machinery, he was already losing his hearing by my age and was stone deaf by the time he died. There’s a whole gratuitous rant in this post about for God’s sake don’t trash your hearing with loud sounds and use hearing protection with power tools when you’re over 40 inspired by his experience. Blue collar work was a bastard and took it out of you.

Arthur Scargill, 19 years a miner and then rabble rouser successfully deploying thugs otherwise known as flying pickets to switch off the lights under Edward Heath’s 1970s administration. Met his match with Thatcher in 1984.

As I child I used to listen to the revolting turkey Arthur Scargill harp on on the radio about how mining was a tough and dangerous job demands oodles of pay, and yet resisting like hell when Thatcher offered 2 to stop future generations going down t’pit by switching power generation away from coal to natural gas. WTF was going on there? Scargill called a strike to guarantee that uneconomic pits should not be closed, presumably a social service to keep dangerous employment open despite it not making money. Coal mining was typical of a lot of blue collar work in the past – dirty, dangerous but compared to low-end unskilled work now, paid better to compensate for that. This Is Money have an interesting contrast of working conditions between 1952 and 2012. In pretty much all aspects conditions in 1952 were worse. But there was a place in the economy for unskilled labour, and people knew where they stood. On the downside, opportunities were dreadfully limited for women and for the brighter poor.

Many blue collar jobs had a decent level of community spirit among the workforce, which manifested in the strong union presence. These jobs were stable across years, even a working lifetime, largely because work practices didn’t change much. In some manual jobs skill and experience built up over decades. So although there was a lot wrong with many jobs, there were some things right. In particular the sense of community and the dignity in work. Some employers provided pensions which were defined – my Dad was a fitter but benefited from one of these.

A key part of most jobs in those days was that they were clearly defined into working time and non-working time. When the factory whistle blew and the workforce downed tools they were off the clock and work was out of mind. This was because communications were limited – phones were connected to places not people. I personally feel the smearing of work into non-work has been one of the most pernicious things to have changed over the last 20 years. As John Philpott of the Chartered Institute of Personnel and Development said in 2012

The world of work has fundamentally changed, but it is not a change which is making many of us happy, according to the Chartered Institute of Personnel and Development.

He blamed the invention of new technology, from laptops to the BlackBerry 3 and the iPhone, which is ‘imposing entirely new pressures on staff.’

While it has liberated people to work from home or from outside the office, it has resulted in ‘information overload, created pressure for an instant response, enabled more sophisticated monitoring and surveillance of employees, and blurred the boundaries between work and non-work time.’

It is possible that I have a limiting belief because my idea of the place of work and leisure was formed in the previous generation – Stephanie Buck (H/T Monevator) puts it elegantly:

Leisure came to define a person’s identity during this time, in many cases superseding career identity. Having a hobby was not only accessible, it was a status symbol. It meant one had time to relax, a privilege previously enjoyed only by the very wealthy.

This is probably one of the reasons why I just don’t miss working at all. I have been able to surrender a career identity because it had less meaning to me. That is the upside of my antediluvian understanding of work. I was also fortunate enough to have spent most of the time working in a reasonably congenial environment with enough challenge to be interesting. I don’t recognise most of my job in Buck’s later observation

Instead of viewing work as the inevitable grind and hobbies as core to one’s identity, as in the post-war era, today’s professionals strive to equate career with leisure.

I started work in 1982, in the transition period between that world and the one we have now, and benefited initially from the improved flexibility but the old community structures of the workplace.

That was then – better communications is changing the workplace massively

Communications have improved over the last 20 years – the advent of the Internet and WWW came in tandem with mobile communications where you now call a person rather than a place you expect them to be, and of course you have more modes of communication.

Strange things have happened as a result. In the early days we expected better comms would mean people to be able to do remote working from anywhere, even on the beach. See digital nomad, above – just imagine all of us doing that. At school I was really told that the future would have lots for leisure time and we’d be typically working one day a week. How did that turn out for y’all?

In fact what has happened is that high-paying jobs have concentrated in London 4 which sucks in people and money, creating a lot of misery in the middle range of ability because they are all in competition with each other for finite geographical space and skyrocketing housing costs. It really wasn’t meant to turn out like this, but it seems the network effect, combined with the increasing instability of jobs means workers need to concentrate geographically, both to interact more with each other but also to have a better chance of replacing one job with another when they get the chop without having to move or take huge commutes.

We didn’t realise it at the time, but the limitations on communications and physical transport of goods and services was a great equaliser. As a thought experiment, say we still made chairs by hand but otherwise had all the information comms and containerisation and Deliveroos we have now. When a horse limited a day’s range to 20 miles, every market town could support, say, a skilled carpenter. In a globalised and high transport world, you’d only need as many carpenters as you need to make the amount of wooden stuff needed. Put them all in one place, call it Heartwood Valley and transport the goods for next to nothing. The quality of the carpentry will probably be a little be higher, and the price probably cheaper, but there will be far fewer carpenters employed worldwide. House prices in Heartwood Valley will probably rise, both because the star carpenters will be making more money but they all have to live where the jobs are.

So now take finance, management consultants, IT and stick ’em all in London. No wonder grunts can’t afford to live there. This is not a new phenomenon, though the intensity of the effect is increasing. Thirty years ago an Ermine in a modest but above-average paying technical job was driven out of London. Where I was more fortunate than Millennials was that the concentration of jobs in London and hollowing out of the rest of the country hadn’t happened, and that jobs were more stable so the risk of ending up in a one-hoss town was less strategically dangerous than it would be now.

Zero-hours contracts aren’t new

I worked on what would now be called a zero-hours contract, in 1979/80-ish ISTR. As a kitchen porter – the idea was you go to an agency early in the morning and they would allocate work on a first come first serve basis. There was no guarantee of any work at all, but you generally got to know the system. No phones or anything. When I inflation adjust my earnings to now I was working for a lot less than the minimum wage, too. That sort of work allocation existed elsewhere too, dockers used to line up in the morning on the same sort of basis to get casual work unloading ships.

Smartphones let employers dynamically allocate work to people via apps, that has the opportunity to turn zero hours contracts into oppression. Casual work is casual because anybody can do it – if you can drive you can drive for Uber, for Deliveroo, and pretty much anyone can flip burgers for McDonald’s. The best way to improve your earning power is to get out of this commodity competition for replaceable skills, because if you have undifferentiated skills then competition is always going to drive your pay down to the minimum wage or lower.

The lower than minimum wage is achieved by zero hours contracts – there are fixed costs associated with being available and ready for work – commuting to the workplace, having a car in the case of Uber, not being able to work for someone else or take your children to school. So you are always are risk of taking a hit if you can’t get your hours up enough. Now in the past the agency sometimes did take a dislike to some people and would always call out others for work before them, but at least that discrimination was visible, and done in person. When an app doles out the work you have no protection against that sort of thing and may even be unaware – as the FT’s “When your boss in an algorithm” describes.

The problem isn’t so much zero hours contracts as such, or even app scheduling – after all every taxi company used to have dispatchers who would match the drivers to incoming jobs over the radio. The problem is zero hours contracts combined with unskilled work, where the work allocators can simply pitch the workers against each other, micromanaging jobs and people in a never-ending treadmill. When one hamster falls off the wheel, there’s an unlimited supply of rodents to replace them.

One hamster is pretty much like another – hamster work is fungible

In that sort of environment the advantages of flexibility accrue to the employers not the workers. To add insult to injury, the welfare safety nets like unemployment benefit are predicated on the job for life, or at least the job for weeks. They just don’t help you fight that sort of here today gone tomorrow employment pattern. These are not entrepreneur hamsters playing the market for their talents. This is unskilled piecework.

The so-called joys of self-employment

The Grauniad asks whether zero-hours contracts really are worse than jobs for life. Sure, for many people with skills that command a premium, contracting and zero-hours contracts can be great. There are the guys that write about how great the opportunities are. Heck, a retired Ermine hasn’t been able to avoid making money totally, and I would be happy with the lack of commitment of zero-hours contracts 5 – if it pissed me off in any way, I’d just walk away. I can afford to do that because I am financially independent. Financial independence is very rare in a first world consumer society – there are many, many people who have far more wealth and income than I but who are not financially independent because of their spending.

It’s easy to big up the joys of self-employment. Yes, you have the freedom of self-defined work and your time is a little bit more your own. Set against that you have the stress of managing a variable income, you have all the grief of self-assessment and the trials of HMRC, you have to run the business, make the judgement calls on capital spend versus return. You also have to carry a massive cash float to manage contingencies, else you risk getting slaughtered in the first cashflow crisis that comes along.

Those that make self employment work for them tend to be the more entrepreneurial, and those with skills that can command a premium. I look at Liberate Life’s description of how to live life working without a job and it looks like one of Dante’s Inferno’s circles of Hell to me – I hate selling in all of its forms 6 – all that hustling would be a nightmare for me. I am so glad that I managed to get to the end of my working life before these changes happened. Perhaps there is sample bias – if I were 21 again then this gig economy world would be all that I had known and I would follow such a path, which looks a great way to play that sort of hand.

But I knew another way, and to my eyes it was a far better compromise for the majority of people, who are of average talent but want to have some stability, have kids and FFS do something other than thinking about work all the time. It served me well, I like to think I had a little more talent for the scientific, engineering and analytical than the average Brit, though I am nowhere near clever enough to work for Google. It isn’t like the compromise kept everybody down, and if you really wanted to run your own business and had talent then you could knock yourself out and go do that too.

Maybe I am simply at odds with current thinking. There was an interesting thread on MSE where a fellow retired, and got so bored he went back to work, which made me think what was summed up in this post

It’s a bit sad to spend such a large part of your life working, retire, and then realise you haven’t actually got a real life to enjoy so go back to work again. It suggests an absence of hinterland

Whereas now you’re increasingly on call all the time without getting paid for it, at below the mean level of ability you seem to be yanked about on a smartphone string and have to think about work all the time. In particular, the sort of digital Taylorism the FT’s Sarah O’Connor talked about in this podcast and article treats their unskilled workers with a shocking level of disrespect.Not only are these unskilled workers micromanaged via their smartphone apps, but they are stripped of the employment rights that used to protect casual workers from the variability of the workload (by paying them for their time, including downtime during the working days). The work providers talk up the virtues of self-employment and being able to choose how much you work, but decline too many jobs in a row and you’re embargoed for 24 hours, so the choice is pretty clear, do as we say or piss off. Hobson’s choice, not a better work/life balance.

It tickled me to hear John Gapper’s faint public school accent debating the plight of the precariat with O’Connor’s slightly preppy uptalking and lashings of vocal fry. I don’t think they know the territory, though kudos to Sarah O’Connor for doing some fieldwork at Uber Eats. It’s epitomised when Gapper asks Sarah at 2:24

“Are they employed? I means what is their actual status? Are they workers…”

It’s not so much what is said – it’s a reasonable question, but you can hear the arm’s length treatment in Gapper’s tone of voice – these aren’t the sort of people the FT hacks typically consort with. I can almost picture him holding the dirty rag at a distance asking “so what exactly is it that we have here?” 😉

Elsewhere in the FT, however, it seems that there are still a lot of recalcitrant proto-Ermines among the millennial set that aren’t that enamoured with the go-getting entrepreneurial dynamism of the gig economy. Over to Sarah again

young workers seek traditional permanent contracts to unlock the necessities of life …

The traditional permanent job contract is still the key that unlocks a range of life’s necessities. Without one, you will struggle in many countries to secure a loan, a mortgage, a mobile phone contract 7 or even a room to rent.

like all that boring shit like a roof over your head and not having to think about work for 24 hours every flippin’ day.

There’s hope. but not soon

New ways of working have often led to oppression of the weakest party (generally labour) until regulation can catch up with it. There’s nothing inherently wrong with better information and mobile platforms, after all Uber and GPS means relatively unskilled drivers can provide a low cost London taxi service that was previously the domain of cabbies in a guild with The Knowledge. Because these things started in the teeth of the 2007-9 recession and regulation hasn’t caught up, they have spread quickly, because they give an advantage to the work providers and probably the work consumers, at the cost of the work doers. Our definition of employment and self-employment that has been acceptable for many decades isn’t fit for this sort of employment/work. So regulation needs to catch up, there’s probably space in the marketplace for smartphone mediated work matching to give novel services with a better balance between the conflicting interests of capital, labour and the consumers. It’s inherently the way of capital to to misuse it’s power over people, for the reason identified by Baron Acton in 1887

Power tends to corrupt and absolute power corrupts absolutely.

Capital is a claim on future human work, the power to get people to do what you want. It needs regulation to gentle it away from being purely a tool of oppression, and it takes time to find that balance. Of course there is always the head-banging Ayn-Randian counter proposal for a no-holds-barred let it all get sorted out in the market. I guess once we’ve killed off the weaklings perhaps the water will find its own level. It’s a bit harsh, but I guess it works. For some strange reason it tends to piss people off seeing that sort of thing happen to their friends and family members, so unless there really is a Galt’s Gulch Uber can retire to they will probably have to come to some less one-sided agreement in time.

It’s not all about the money

though at the bottom end it is… Some of it is about dignity and respect. When I boil it down to the essentials, what I came to hate so much about working at The Firm when they laced it up with stupid performance management metrics wasn’t that the pay was crap, it wasn’t. It wasn’t what I did, which was okay and mildly interesting when it was the actual job in my job title, as opposed to feeding the performance management system bullshit. It was the increasingly demeaning and disrespectful nature of the micromanaging performance reviews and endless justification of my existence, the gamification of the workplace. This crap was unnecessary – it was either a deliberate ploy to make people feel so shit about themselves that they would leave, without having to pay redundancy, or it was some sort of management fad. I recently heard from someone still there, at a more senior level than I reached, who was going through this again – he had to justify his existence, say why he was meeting objectives half of which had been imposed without discussion, and I was so glad to be out of there. But at least the pay was enough to reach FI with a bit of grunt.

When you’re working at the casual end of things, your boss is an app, you have the same sort of arbitrary rules plus various ratings for jobs taken, customer feedback etc you have the same disrespect without the compensation of getting paid the FU money.It’s one of the tedious things about buying online from the gig economy. You get bombarded with requests for feedback to up their metrics. Sorry, but I don’t do feedback any more. I just want to pay the money, get the goods and get out of there.

Recently I bought a replacement car battery from Halfords because I had been a jerk and ignored the signs the old one was fading. So I jumped the battery with a leisure battery and got lost on my way to the cheaper joint. Knowing I was at risk of not starting the engine again if I stopped it took the hit at Halfords. Then realised I only had spanners in my car toolkit, not a socket long enough to reach the lower battery clamp, and my 30-year old jump leads weren’t man enough to turn over a diesel engine from the new battery. So I was faced with pay the £10 fitting charge or buy a socket set, well, I was idle and paid up. It was a pleasant enough transaction, but no, I didn’t actually want to get a card soliciting feedback on my experience. It’s bad enough online, and there’s no need to feed these stupid monitoring systems in bricks and mortar shops too.

No wonder people are pissed off at the bottom end of the gig economy – they are paid sod all and treated like shit. One or the other you can live with, but not both.

Notes:

I don’t speak of it from experience, because the first smartphone I got was after I finished work. And I decommissioned the bugger about a month ago because it was seriously pissing me off. It did most of the things I could do with a computer, but all at half cock, and was poor at answering phone calls. ↩

I know it was an existential fight and all that but the miners lost my sympathy when they turned the lights off while I was at school and I heard arrogant SOBs like Scargill tell how they were going to run things by sending thugs round to stop other people working. ↩

Doesn’t that date the report – this was a year after the hot summer of rage when da yoof ran amok and rioted in London for better trainers, communicating via BlackBerry Messenger. I don’t know if you can get a Blackberry these days ↩

that which I do is probably closer to individual contract jobs, I wouldn’t take low end ZHC jobs where you have to be there for them but they don’t have to be there for you, because I am not having people take the piss out of me for money, the second word in my response to such a proposal would be “off” ↩

I chose LL because he is an engineer with IT and electronics which was what I used to do in a former life ↩

I have never attempted to get a mobile phone contract because I am a PAYG aficionado, but presumably as someone without a permie job I would be SOL on that one too ↩

I am surprised at the nonchalance in the UK personal finance scene about the fall in the pound as a result of the Brexit vote. I am not making a long-term prognosis about whether or not Brexit is a good thing, but what is incontrovertible is that it has led to a sudden drop in the pound relative to other currencies. To avoid the vicissitudes of other countries’ fortunes I am using IMF Special Drawing Rights to compare the pound with. Let’s have a definition

The value of the SDR is currently based on a basket of four major currencies: the U.S. dollar, euro, the Japanese yen, and pound sterling. The basket will be expanded to include the Chinese renminbi (RMB) as the fifth currency, effective October 1, 2016.

Since the SDRs include the pound, a fall in the pound slightly devalues the SDRs, so the picture looks slightly better than it really is for a drop in the pound 😉 If you don’t trust those cheese-eating varmints at the IMF you can see the same effect in the good ole United States Dollar down below.

A fall in the pound relative to other currencies makes us poorer than the rest of the world. We have to exchange more pounds for foreign goods – these foreign goods include most of the food we eat and the fuel we heat our homes with and put in our cars, it’s not academic. Because of lags in the distribution of goods this shows up as higher prices over time, typically over a year. I was a Remain voter so my view is that this change is a strategic impairment of the pound. This is my opinion – it is perfectly possible that the pound will rise over the coming year as the myriad delights of Brexit make themselves manifest in a cornucopia of joy. In that case my thesis is entirely wrong, and it will all come good. If you believe, nay, if you know that to be the case then save yourself the trouble and stop reading this pusillanimous piffle right now.

Let’s have a fact check – has Brexit made the pound fall?

how many IMF SDRs (ticker XDR) for a pound

I think that’s a yes, so far. Probably about 10% this year. It’s not the only time, we all got a hell of a lot poorer following the financial crisis. Stands to reason, we make jack shit 1 and sell financial services, and the GFC was, well, a global financial crisis. And that’s what most of the services are, I guess.

We don’t really make anything any more. Data source is linked to image (fig 8)

So we took it straight between the eyes

the 10 year story

Does it matter?

Well, Britain imports most of its food and fuel, while we focus on being clever whizzes at financial services, Ricardian advantage to the fore, eh. So you get to pay more for that food and fuel compared to people in other countries. However, there have been deflationary effects on these – the oil price has dropped since the GFC for instance. So let’s narrow this to does it matter to investors?

Well, yeah. Let’s take a look at the price of VWRL in pounds. Hmm, that’s not so bad, it actually went up after Brexit. I managed to buy some in the confusion, so I am feeling chipper, look at me, ain’t I clever?

VWRL in the GBP I have got

Now if I were an American and had done that after the initial drop, I would be feeling different. Not bad, but no turbo boosters from the falling pound.

VWRL in the USD I haven’t got

So the fall in the pound has made foreign assets dearer for me compared to if I were not buying with pounds. While that makes me think whoopee-do when I look at my ISA screen and I think hey, I am a fantastic investor. Not only did I stay the course through Brexit and even buy, I am up on the deal because all the numbers are going up, it also means something else.

I have lost my compass

I have lost my main navigational instrument, and my ISA allowance has just fallen by 10% in real terms compared to the rest of the world. So have my tax allowances, and for those rich enough to worry about such things, so has your Lifetime allowance.

Some commentators seem to think that there’s both a perfect level for sterling and that they know what it is. I didn’t hear wailing when sterling fell from over $1.70 in 2014 to under $1.50 in 2015. If it ends up at c$1.40 after the current turmoil, so what? No need to sacrifice our first born to Cthulhu just yet.

Well, I was wailing earlier in the year 😉 There is something up with me, I am much more nervous about the pound than most other people. It scared me in 2009 as I was shovelling money into foreign assets in my AVCs while Mervyn King was printing money and devaluing the pound. So let’s take a butcher’s hook at the GBP against USD (unfortunately I couldn’t find one for IMF SDRs going out that far)

GBP against USD

This is not a continuous story of success, or even random noise against a mean, and it’s a headwind against UK investment – even against the Euro we are 20% down over the same period. If I’d held exactly the same portfolio as an American investor over those 12 years, I would pat myself on the back because my numbers on my screen would have risen 40% up on his. And I would be lying to myself. The truth lies somewhere in between, and we normally just don’t see that.

So I’m not saying I know what the perfect level of sterling is. Devaluation of the currency is how governments charge us for the taxes we aren’t prepared to pay for the services we demand, though this last hit can’t be blamed on the government. So while I don’t know what the level should be, I do know that it’s headed in the wrong direction, has been for years, and I’m getting poorer relative to the rest of the world if I hold cash in GBP. We will notice that in higher inflation in the years to come, particularly if the oil price continues to rise in USD. Of course Donald Trump may help us with that in November, though I suspect we may have other problems then.

It is true that long term adjustments to exchange rates are A Good Thing. It allowed the Greeks to pay themselves more and more and feel good about that while the Drachma depreciated so tourists could still afford to go there and their rice filled vine leaves were cheaper in British supermarkets in Pounds. And then they joined the Euro. Basically floating exchange rates allow you to be lazy bastards collectively relative to the rest of the world and get away with it. If somebody asks you to take a pay cut of 10% there’s hell to pay and rioting on the streets. If you get the same pay and you currency drops by 10% then there’s the same fiscal result but no rioting. Stopping that happening is the original sin behind the Euro, but that’s a fight for a different day. I am still of the opinion that the Euro will blow one day, and we may be glad of our Brexiteering spirit as blood and guts rain down in the aftermath.

Those stock market rises you’re seeing ain’t real, guys

And being less productive is what we have all just voted for, but I am surprised at the simplicity of UK investors so being chuffed at their portfolios going up. Now of course that’s a win on having sat on the cash, or worse still, having sold and then rebuying, but do the thought experiment. Say you bought your portfolio with pounds the night of the Referendum. For some reason it bounces, so you issue the same purchase order now. And it’s dearer, so you get to pay more money for the same portfolio. That is Not a Good Thing. When that happens to the price of food, petrol, Starbucks lattes, wine and German cars that won’t be a good thing either.

Which is why I wince when people celebrate on the rise in the stock market. It’s not real. Indeed, my portfolio is the highest it’s even been. My pension will be worth less, the cash I hold is worth less, yes I am richer in the ISA but poorer is so many other areas. Oh and I am stuck on an island with these guys.

Deep joy. I’m putting a hold on the champagne.

Notes:

we actually manufacture more in real terms value than we did in the heyday of manufacturing in the 1970s, but do it with far fewer people ↩

We have decided to quit the EU. It was a democratic decision with a gap of over a million between the sides, so it’s pretty clearly what the majority wanted. Unlike many Remainers and a large part of the London/finance set that make up the PF blog community, I have sympathy for the part of the Leave community who say their wages and jobs pushed down by the free movement of people after the A8 accession of countries that were much poorer than the UK. I believe their choice is not in their long and medium term interests nor in mine, but I can see where they came from.

We used to run the biggest empire the world has ever seen, and with a much smaller domestic population and a relatively tiny Civil Service. Are we really unable to do trade deals?

We used to run the biggest empire in the world because we industrialised first and had the edge on being able to clobber other places into submission. Things have changed in 100 years peeps. The modern predilection for everyone’s a winner would have no truck with the entrance exams for the Empire Civil Service.

I want to preserve my capital against the own goal that is Brexit. I may have sympathy with many of the people who voted Leave, but I don’t want to sponsor their decision any more than I have to.

You wouldn’t start from here (after the Brexit result)

as the classic joke says. Fortunately I am not coming from a standing start. I started a while ago. In 2009 my HYP was largely FTSE100 based, I’m fortunate in not having great exposure to banks because I can’t value them and only a small exposure to property/housebuilders because UK property scares the bejesus out of me. But I didn’t like the geographical bias and started to shore it up with an outer circle of index funds in emerging markets, Dev world exUK and more recently VWRL world equity trackers. I was aiming for focusing less on finance and more on Life, because I was dealt a good hand by Osborne in being able to use my DC pension savings to front-run my main pension.

My main problem is that I hold sterling assets. And the big problem is that sterling will become increasingly worthless as trade and foreign investment falls. We’ve already taken a massive hit in the financial crash. I am particularly exposed to this as people still working may see their wages rise with future inflation, where as my networth is the accumulation of previous earnings. On the other hand I have advantages – redundancy is not a threat to me and I don’t owe anyone any money.

XDRs are IMF Special drawing rights, a basket of foreign currencies, against the £. I use XDRs because individual currency pairs just show relative changes, XDRs are the luminiferous aether of forex which gets us away from all this relativism…

Okay so a lot of it (more than half) are foreign assets denominated in sterling, so the fall in the pound will merely give me a false impression I am a great investor by raising the numbers on the screen rather than make me fundamentally poorer in these assets, but in the end my pension is in Sterling which is most of my effective networth. Unlike some I don’t consider my house in my networth so I am neutral on that and I don’t own any rental property, so if house prices fall I don’t feel that is a bad thing.

price of an ounce of gold in pounds

Oh and I bought a lot of gold last year, because the ermine is a skittish creature and the 2015 valuations of the UK stock market and the US stock market, together with the infinitesimal chance of Brexit 1 scared me, and people thought gold was trash, witness the GBP/XAU chart. OK so I sold some of it before the referendum to half-split the profits which was a bad move in hindsight, but I still took a profit, and I will hang on to the ballast of the rest for a while. Unfortunately I also hold a lot of cash because I have only recently crystallised my SIPP. My dear fellow countrymen have made me 25% poorer in real terms last week, this will come through in the price of imported goods like food and fuel and pretty much anything I do if I stick a paw outside this sceptred isle.

Harold Wilson was quite right in my schooldays when he said the pound in your pocket will stay the same. It’s what you can get with that pound which changes, so I really need to do something about that cash. I have already started with some of it into VWRL, and will drip feed some of the rest as I extract it below the tax threshold into VWRL. I will accept the risk of a market crash in five years time when I will have run the SIPP flat; I will start coming out of the market in four years time and if I take a hit on the SIPP I will start to take income from the proceeds of the ISA. And if it all turns into tears in falling rain, well, that’s just the way things pan out.

I owe Monevator a few beers – my original HYP was heavily UK based with big fish from the FTSE100. But his diversification articles were compelling, and I shored the UK core up with Devworld Ex UK and emerging market index funds. In the HYP I was fortunate enough not to have a predilection for banks (how do you value a bank?) or house-builders, though my REITs look like sick puppies 2. For some perverse reason my ISA ended up on the week 3 though it took a hit early Friday. But I have bought more gold and more VWRL. The obvious choice is in many ways Lifestrategy100 but the GBP version is too UK biased, hence a favouring to VWRL. World equities are tanking too, but the pound is tanking faster.

I’m interested in ideas though, what if anything do readers think as a way of losing less capital through the troubled times to come? Or is it as simple as sometimes you have to stick your head between your knees and kiss your ass goodbye… This one is big, and it’s bad.

Notes:

as perceived at the time, but you should always bet a bit against your prejudices ↩

It’s not like these bad guys are underwater yet, but it’s getting that way ↩

The shortest day is one where attention turns to Winter, and the promise of an eventual Spring. I’m going to be contrarian and think about a nascent Winter – for the collective spendthrifts that seems to be the Great British Public, from hero to zero and beyond in six years:

this ain’t gonna end well

I see the party out and about, particularly at this time of year. So does Barclaycard – apparently the lower oil price has done wonders for the restaurateurs of the country.

apparently Barclaycard process half of credit card transactions in Britian, which I find hard to believe. Anyway, these are the changes in spending

The good thing is that the predicted rate of change in overspending is slowing. And of course everybody is feeling chipper. Bless their cotton socks, the opposition tried to make political capital out of this without doing what I am doing in this post and hollering out like Scrooge

Britons – you are overspending way beyond your means. Cancel Christmas and Stop It Now

After all Cameron got into no end of hot water when he said that a few years ago 😉 Learning from the flack he took, which is basically don’t you dare tell people to spend less, even if it is the very thing they need to do, what this came out like was

Ms Malhotra added: “Of course families need access to credit and the ability to borrow to invest for the future.

Families do not invest for the future. They live by YOLO. Families overspend and firefight the mess as best they can later

No. I’m sorry, but the general level of financial awareness in Britain is just not that high. Families in general have no understanding of the meaning of the word invest. The principles my parents outlined thirty years ago still hold. Don’t borrow to buy wasting assets. Only borrow if you will save more in total (housing – where you expect a relatively settled lifestyle) or earn more than the total cost (education, in some circumstances which are getting rarer). For all else pay cash, and if you haven’t got it you can’t afford it.

There are very, very few good reasons to borrow money in Britain. Under some circumstances borrowing money to buy a house is one, although I am not so sure that now is one of those times. I borrowed too much money to buy a house. The damage to my personal finances is still visible after 30 years – the only reason I am in a better financial position than some of my peers is I managed to shut down some of the other ways British households misallocate capital by borrowing it.

Let me tally a number of ways many families fail to invest –

in the immortal words of a good lady friend “they pick up financial commitments like pets and children without thinking through the financial consequences”

They borrow for university, an asset that is being rapidly devalued through oversupply and becoming an increasingly unaffordable luxury. Once upon a time (1990s to 2010) you could have made a case for investing in a degree. It’s tough to make that case now.

They borrow to buy wasting assets like cars, for God’s sake. You can get a damned fine used car for £5k and a decent runner for less.

They borrow to buy shit they don’t need to impress people they don’t like and keep up with the Joneses

They overspend on Christmas because they lack the integrity to tell their children that times are harder now. The road back from that sort of inattention is much longer and harder than recognising straitened circumstances at the time and shutting elective spending down until you know where you are.

There are other subtler ways that people malinvest, but borrowing to spend on wants rather than needs is never ‘investment’. The shortest day of the year seems a good time to recall that borrowing money is a great way to give your future self a hard time. There are going to be a good many consumers whose forthcoming financial Winter will hold no Spring.

The problem is that very few people invest. And those people, which probably includes many regular readers, are people who are relatively wealthy compared to most Britons. You don’t usually get wealthy by investing, that is what Work is for if you spend less than you earn, but it is often the way you stay wealthy. There is a massive difference between investing and spending. Opportunities to invest are hard to find and come rarely, and usually involve some sort of uncertainty. Opportunities to spend are commonplace.

Of course families need access to credit and the ability to borrow to invest for the future

is a chimera. I’m of the opinion that Britain would be a much happier place if there were far less access to credit for British families – like the credit controls of the 1960s and 1970s. The excess of credit since then seems to have made the banks richer and the people poorer, because they are increasingly forced to overspend on housing precisely because of this credit. It is a classic tragedy of the commons – of course I want to borrow more mortgage to outcompete you. But like an ostensibly neutral country supplying arms to both sides, the banks have no specific loyalty to me, it’s when you can borrow more to fight back that this becomes a gun that fires on both ends – we both pay more for our houses and the banks get to lend more money out. What’s not to like? Well, the opportunity cost of what else we could have done with that money!

Sooner or later we are going to have to nail this problem. Sometimes you shouldn’t be allowed to do what you want to do, and the litany of commonplace consumer cock-ups with credit is getting longer and longer. It’s no fun any more, and the promise of endless financial winter doesn’t sound so great either. We managed to shut down a lot of Money Shops. We managed to slow the number of Liar Loans on owner occupation. We are taking the battle to the tragedy of the commons otherwise known as BTL. There is hope. Perhaps we need to make it easier to repudiate consumer debt, then banks would be more circumspect about who they lend money to, since the old ways of having credit controls is considered dirigiste and fuddy-duddy in these laissez-faire times. What exactly is so terribly wrong about expecting people to have the money up front for their consumer wants?

Since you, dear readers, are presumably not among these consumer spendthrifts, a happy Christmas to y’all!

Another day, another sideshow in the Punch and Judy sideshow that is the slow crawl towards Grexit. It’s getting tiresome, because this is a crisis of leadership – problems don’t go away by whistling a dancing tune and come up with ever more outlandish ways of looking the other way.

At the heart of the matter is that Greece doesn’t like austerity, and doesn’t want to exit the Euro. They can have that, provided there’s a permanent influx of other people’s money. Those other people are getting shirty about this, and are saying that the price of our money is that we get to run your country in a different way. That different way looks pretty rough to me – there’s no way it’s going to stick.

Greece has promised to pass laws introducing controversial economic reforms by Wednesday. These include reforming the VAT system, overhauling pensions and signing up to plans that ensure immediate spending cuts in the event of breaching creditor-mandated budget targets.

In the end Greece needs to find the cojones to seize control of their own destiny and quit the Euro – because it’s clear that the price of support is getting dearer and dearer. In the long run things that can’t go on, don’t, but it takes time to resolve the conundrum of the irresistible force and the immovable object. In the long run, of course, we’re all dead – it’s not surprising that most of the Oxi came from the young, who have most long run left 😉 By the looks of it the consensus of avoiding Grexit at all costs is losing the fight as it drags on. One of the flecks of gold panned from the endless tailings of random wibble from G Dubya Bush was

Fortune favours the brave and the decisive in situations like that, those that look at the predicament they are in and who take decisive action early to try and influence the outcome. I kinda like the pithy summary of

“The facts tell us what to do and how to do it, but it is our humanity which tells us that we must do something and why we must do it.”
— Sully Sullenberger

Sullenberger was piloting a jet aircraft over New York when suddenly a flock of geese stopped the clockwork 3000ft above the city. Unlike the Greeks and the Troika with their endless river of make-believe deadlines, he had three and a half minutes to bring things to a definite conclusion.

Tsipras failed the Greek people in asking them in a referendum ‘do you want the particular form of austerity that was on offer in early July’. He should have asked them the straight question

This much austerity or more, or leave the Euro?

At the moment it looks like he went to the country, asked them their opinion in an incomplete manner, then tore it up the confusing result 1. This is not a fellow I would want in the cockpit.

Financial problems don’t get better through fudging them. The Ermine didn’t fudge the problem of my career going down the pan in 2009, within a month I had shifted savings to ISAs and drove my spending down to be able to save the maximum possible. I lived on the minimum wage plus an ISA allowance and saving the ISA with the rest going into pension savings to stop paying tax and NI on it. It worked – I was able to leave after three years and coast for three years more before I can get those pension savings. It wasn’t fun spending minimum wage while working at a higher level, because I couldn’t afford the middle class distractions that compensate for the suckyness of the way the job was going. I was lucky to be able to jump to a different project, but unlucky to run into the wall in the first place.

Sometimes you have to accept that all solutions before you stink, but that some of them are more ugly than others. The Greeks can either be a lot poorer soon, but then stop getting poorer and possibly turn things round, or they can face becoming incrementally poorer without a clear end stop, dependent on the unknown future grace and favour of others.

a fine Greek graffito

Greece has a lot going for it – but not in the Euro, and all the time they spend chasing the chimera of less austerity within the Euro the situation is degrading. Everyone with movable assets has been moving them, that much is sensible. The middle class’s savings will be destroyed, just like they were in Germany – twice. They will be destroyed in the fall of the drachma or destroyed in trying to stave off the impact of austerity – basically the choice is death of their savings fast or slow.

It’s all too easy to choose the slow death approach by trying to avoid making a decision, but it nearly always makes the outcome worse. This ain’t going to end well. Germany can afford to throw money down this money pit, but are getting increasingly unwilling to do so. The question is can Greece afford to live the way that the Troika want them to, and I venture probably not. We’ll get to watch this movie again.

While our eyes are focused on the slow train crash that is Grexit, over on the other side of the world there is an interesting example of King Canute seeking to hold back the waves. In China they seem to be of the opinion that their overheated stock market, having gained over 100% in the last year, is supposed to stay there. If you’re one of those capitalist running-dogs that is going against the story looking to sell, well, you can stop what you’re doing right there. Hardened Western investors who went through the dot-com boom might ask themselves what the good reasons were for last year’s 100% heft in a generalised index 1

Markets elsewhere have been on a roll of a long time, and while Grexit is unlikely to hurt too much outside Greece this one could be the second shoe dropping. There seems to be a lot of ruin in China as it tries to reorient itself from its early 2000s economic model to something that matches the post Lehman-crash world. There’s a lot of ruin in most economies, and it doesn’t necessarily lead to trouble, but by its sheer size China could have big knock-on effects.

Better to be a dog in a peaceful time, than to be a man in a chaotic period 2

There haven’t been tremendous buying opportunities in the markets for two or three years now. But interesting times lead to interesting opportunities. There’s still too much zombie puffery inflated by easy money after the 2007 crisis. Emerging markets are probably where it’s at in 20 years’ time, and perhaps we will have more opportunities to pick ’em up cheap in the next few years if this sucker goes down. Of course, associated with that will be all sorts of other misery. I’m not doing a Dubya and saying ‘bring ’em on‘. China has big challenges ahead with the whole get rich before getting old thing, and I personally have avoided investing in it 3 because I have no feel at all for the country – my preferences in emerging markets lean towards India, Latin America and Africa from a demographic point of view. Howard Gold is quite right to describe EMs as having gone down the toilet, but I’ll be surprised if they stay there for the ten years he is calling out. I don’t have enough EM exposure, because in the years after 2009 I was building a HYP. And I don’t want to be a dog…

Notes:

this question being, of course, the one they failed to ask themselves in 1999 – ain’t experience and hindsight a wonderful thing? ↩

This is a story too hard to call, and yet it seems to be gathering speed. Hot summers are also good for a decent rumble in the markets, in the immortal words of George “Dubya” Bush

If money isn’t loosened up, this sucker could go down,

And here it is from Tsipras himself

Now I’m sure there’s going to be loads of punters and talking heads, most of them better qualified than I on the whole macro thing, but this is my blog so I’ll add to the wall of noise.

I think the Greeks are taking the piss wanting to stay in the Euro on other people’s ticket, though I do see the point that the Germans are also taking the piss in a different way. The advantage the Germans have is they are the ones with the money. Fundamentally there seems to be the tension in the design of the Euro and the regulations about fiscal probity and not having it as a transferunion, it’s like wanting things to be light and dark at the same time. We’re about to find out, when push comes to shove whether we will have fiscal probity or we will have a transfer union in the Euro, and the symptom will be Grexit in the first case and Grescue in the second.

My hope is for Grexit – it is a second shoe that didn’t drop in the 2009 financial crisis. Something unsustainable gets worse and worse as time goes by. I see the point that Europe stiffed the Greeks by bailing out Europe’s banks in 2010. Greece is owed something by Europe, but not everlasting transfer – unless that is democratically agreed not just by Greeks wanting it or not but by Germans and the rest of the Eurozone voting for a transferunion – it’s not just up to the debtors to holler “I want”. Too much of European policy is decided before putting it to the people, and that sort of thing needs to stop until the people can catch up or say “enough of that”. Half the trouble we have is that it’s not clear if there’s enough common cause for a United States of the Eurozone, the symptoms seem to indicate not. A lack of common cause in Europe has been ugly in the past.

Europe does owe the Greeks something. A Grexit will be a serious shitstorm. Not much can be done to avert the initial storm, but Europe could do well to take inspiration from the United States. Both the Marshall Plan, and indeed how Nixon handled Hurricane Camille in the 1960s rather better than Dubya handled Katrina that attacked the same region.

The Nixon administration realised they could not fight the storm, but they could chase it, and render assistance the day after. Perhaps something similar is owed Greece – yes, they may have to default, and return to the drachma to regain fiscal sovereignty. In the shitstorm that ensues, Europe should render humanitarian and basic stabilising financial assistance without strings and given, not lent. It will then be up to the Greek people how they want to live, with some semblance of fiscal probity or with the high levels of tax evasion they seemed to have. In the latter the value of the drachma can fall to adjust, and people still feel good.It’s got form…

As time went by you needed more and more drachma to buy that 1990s US dollar (I mislabelled the £ and DM which need to be switched)

Interesting times ahoy?

Too tough to call at this stage, but it’s worth getting ready. I don’t think that the credit crunch was ever properly fixed – what seemed to happen is QE went into inflating asset prices – that’s houses for you lucky BTL landlords if you can sell at the higher price and share prices for the rest of the PF community. The hard-pressed middle seemed to get the short end of the stick, and indeed are due for a second helping in Osborne’s budget next month. Further afield there seems to be trouble in paradise China though there seems to have been a fair bit of irrational exuberance too.

I need to shift about half my AVCs to my SIPP, but the remaining half is due to come out in just over five years time, and I don’t need it for income. Although as a deferred member I am a second-class citizen it appears I can still switch from the cash fund I have been in for a while (when I thought I would have to draw it early) to the 50:50 Global:FTSE100 index fund that served me so well between 2009 and 2012. Since I can shift some to a SIPP I am not up against the 25% tax-free PCLS limit any more, so I may well go back in for another bite of the cherry over the next few months, spreading myself over time buying into (hopefully) a falling market.

At the moment the market isn’t really reacting in any big way. For sure, I may look stupid saying that in the coming week! The Grauniad says Shares slide as deepening Greek crisis shakes global markets and the Torygraph says World Markets in Turmoil but we’re only talking 2% – at the elevated levels shares have been this last couple of years a 20% fall would probably still be a correction rather than a dive IMO 🙂 Only hindsight will tell us if these are the trumpets at dawn heralding the second phase of the 2007-9 credit crunch. But yeah, looks like times could get more interesting and the stock market a lot less boring than it has been of late.

Interesting times are also times when it’s more comforting to have paid down the mortgage and be debt-free, with a unreasonable amount of cash, and have most of this year’s ISA allowance free. Mind you, over at Fidelity there are fellows telling you to go a step further and hold physical cash in the mattress…

Let’s hope for some statesmanship from our EU leaders

It may be time to surrender a piece of the Eurozone dream in the case of Greece. But I despise the talk of Greece having to leave the EU at the same time, and I hope in the back rooms there are people drafting a different tone. If the Greeks move to the drachma which is probably their best long-term route, the history of the EU and indeed the spirit of the people who set up the Treaty of Rome in 1958 should prevail. Europe fought a second world war because the victors pushed for an ignominious defeat. Greece doesn’t belong in the Eurozone, but it belongs in the EU if that is the wish of the Greek people, and the EU as a whole owes it the grace of assistance across the troubled times ahead. It’s time for a magnanimous resolution, and giving thought to establishing what a successful Eurozone looks like, what needs to happen and whether the people really want that. The markets will be gunning for the next target soon…

Dudes, your lunch was eaten, digested and shat out t’other side years ago. How come you only just noticed? People have had the time to write books about the problem. Ermines have written posts on how the middle class needs to wake the ***k up and get ready to take the sucker punch, middle class families on the brink, savoured the come-uppance of Shona Sibary stupidly selling her house in bits to fund her excessive lifestyle then discovering she doesn’t own her house anymore. The middle class threw the poor and the working class under the bus by voting for neoliberalism in the 1980s 1 that destroyed blue collar jobs, without asking the questions about where this was all going to lead. The Guardian was drawn out with a riposte along the lines of what part of we’re all in this together did you not understand…

So what is this lifestyle-eating inflation you speak of, Mr Telegraph? Well, the cost of some desiderata has been going up faster than average wage increases – to wit

increasing cost of luvverly stuff going up

Let’s take a butcher’s hook at what these essentials are. School Fees – despite every child being entitled to free education in the UK and indeed this is wot drug up your ‘umble scrivener that’s not enough for some people, and all those hard-working furreners are bidding up the price. Health insurance. Eh? We have the NHS, and if you are rich enough to be middle class then if you want to jump the queue for your hip replacements then take the Ermine line. It’s about 15k to pay privately. Things like that are what the middle class used to save for before they discovered home equity lines of credit to buy consumable shit. They knew a thing or two, your grandparents when they saved for rainy days, ‘cos they’d seen hard times… Dental care, well, yes, it probably is increasing, but it’s what, £200 a year. You’re not middle class if a 100% increase in that is going to make you sweat, and stop giving your kids sugary shit advertised on TV, at least after they have changed out their milk teeth. Holidays – the middle class used to have one foreign and maybe a UK holiday a year. Now you’re deprived if you don’t have four. The enemy is consumerism, and the enemy is within – lifestyle inflation.

What are we comparing this with? Average wages covers a multitude of sins, but most jobs created in Britain since the mid 1990s have been at the lower end of the scale. These are not middle class jobs where people aim to send Tabitha to public school. Some of these are jobs where people aim to make last week’s rent. These are some of the people that you, Middle Class Boss Person Sitting in your Corner Office, downsized or outsourced or just plain fired. You would have to compare middle class wages for this to have meaning. In fairness, the poll of their subscribers’ income indicates times are getting hard for them. Again, there could be sample bias – Telegraph readers are not spring chickens – indeed a fair number may have retired between 2007 and now time because they’re not picking up da yoof.

The Daily Mail and The Telegraph have the largest percentages of over 65s, making up almost half of their audiences – at 45 and 46 percent respectively.

One item shows just how damned ungrateful the middle class is. The price of the average new car driven by Telegraph readers is £13,456. When I first read this I went WTF? you can get a new car for that little? The last car I bought second-hand in the early 2000s was ~£5000. These Torygraph readers presumably buy a new car every three years because that’s what one does if you haven’t been educated otherwise. Given that they therefore spend on average a shade under 10% of their gross wages, roughly £4000 p.a. on new cars and this big-ticket item gets 6% cheaper than the last time they bought it you’d think the blighters would show a bit more gratitude.

A word in your shell-like, Mr and Mrs Middle Class. The good times ain’t ever gonna roll again, because you are in competition with the whole freakin’ world now, rather than a third of it. And most of the rest of the world is generally poorer than you, they’re ready to work harder, because the extra wedge will make a bigger difference to their lives. They want to eat your lunch and your nice sinecures where Mr Wealthy but Dim used to cling to the pipes of capitalism like slime-moulds slowing down the system a bit. Your kids may actually end up richer in absolute terms but feel far poorer and less secure, because being middle class is all about relative status.

How did we get to such a sorry pass, eh? Let’s take a look at history, shall we.

A history aside

We have to go a long way back, to when the definitions of a middle class lifestyle were defined – roughly meaning owning your own house in the ‘burbs outright by retirement, a decent middle-management job, sending up to two kids to private school 2, owning a car and having a foreign holiday a year, though the latter were children of the 60’s and 70’s. This was the deal struck by Whyte’s Organisation Man 3

Way back in time, there was a hell of a bust-up called the Second World War. Shitloads of capital got destroyed and a lot of people got killed and hurt. The British Empire that had coloured in most of the map of the world pink imploded, because so much of the energy that was used to rule other places had to be recalled to defend the homeland in an existential struggle that is still now worthy of admiration and I am grateful that a flame was kept alive in Britain while the lamps went out all across Europe, twice in 50 years.

The British Empire in 1915, when the sun didn’t set on it. Sic transit gloria mundi and all that…

In the aftermath of this the world divided into power blocs with different ideologies, glowering at each other across iron curtains and Berlin walls and suchlike – they drew clear borders and so it came to pass that Russia and China were outside the global trading system as perceived by Western middle class consumers and the firms they worked for. And the green bit didn’t endanger Western jobs either.

First, second and Third worlds. Decoding the colour scheme should be clear enough. You’re with the blue team 🙂

Communications were expensive and computers were dear, hard to use and few and far between. 4 There were no useful databases – there were shocking levels of basic admin work and most middle management couldn’t type – they dictated their memos for others to type out for them. In 1979 at university in one of the premier science institutions of Britain I looked up books in the library using the high-tech solution of…6×4″ index cards in polished wooden cabinets.

What a database looked like 30 years ago

Cold war capitalism’s world was smaller, productivity stank by modern standards, far more people were employed and there was far more work for people at lower end of the ability spectrum. People had children earlier, and jobs were more stable – the residual defined benefit pensions were a carry-over from this era, when employers sought to hold on to staff (and in the case of scientific and technical jobs, invested in training people).

There is an argument to be made that the number of scientific and technical jobs were artificially inflated during the Cold War compared to what the economy needs which is why there was a push to educate some of the lumpenproletariat in grammar schools and free university education provided you could pass the tougher exams of the time. Again, I am personally grateful for this – I gained from the grammar schools and free university places, but when I entered Imperial College 7% of school leavers went to university. We could afford free university education then, and I would be all for making it free again – provided the entrance criteria were made tightened up again so that these free places went to, say 10% of school leavers. 5

Then in the 1990s along came the Internet improving communications enormously, the Iron Curtain came down because it turned out that the problems of communism showed up in economic breakdown earlier than the problems of capitalism show up in economic breakdown 6. The Chinese decided they would like to join the party on their own terms.

This means that a UK worker at the start of their working life now is competing with three times as many people as I did in 1982; the odds are in fact worse because the world population is higher 7 and better communications means that the pool of workers that can be drawn upon is far larger by at least an order of magnitude than it used to be. On the plus side you live in a far richer country, healthcare is better, opportunities for the talented are far-far better, which is the flipside of the better communication, so the average post-Gen X reader of this (if there are any 🙂 ) has probably progressed a lot further in their career than I had at the same age. Many such have travelled and worked abroad and had a wider experience that I have. I’ve worked in international teams but never based abroad – it was by no means impossible but it seems much more prevalent now. 8

Living standards are normalising worldwide. So far this is a win for humanity but a lose for Mr Daily Telegraph and his kids

So, roughly boiled down, the problem with the middle class is that they are in competition with a lot of their worldwide peers, but they normalised how rich they expected to be relative to other people in Britain in an era when they were only in competition with the rest of the First World. Globalisation is reducing inequality worldwide, but increasing it in the First World 9. When it comes to specifically their children and their dreams for them, then not only are their children going to face far worse competition than their parents in the employment market did as communications get better. The birthrate in the UK isn’t as high as it is in places that can supply the competing workers which amplifies the competition. It is patently clear to me that middle class parents who want their offspring to have a middle class lifestyle need to start getting on the side of capital for their kids unless those kids are both brilliant and driven. Leave them shitloads of money, because Dim Rich isn’t going to find sinecures like they used to in a more competitive world. Even Halfway Average rich ain’t gonna get ahead through hard work faced with those odds.

Alternatively they could adjust their expectations of how rich relative to other people they want their children to be. Mr Money Mustache’s takes the battle to the enemy as usual – if you don’t want your kids to join the rat race then maybe teach them not to race rats, which is broadly what the current charade that passes for ‘education’ goes for. We need to teach children to learn and adapt in a changing world, we aren’t making factory units any more. Then there’s the whole automation and Humans Need Not Apply thing. Just like Dustin Hoffman was urged to get into plastics, Capital is your best hope now – don’t buy shit you can’t afford and identify yourself with what you spend money on.

Seeking validation in what you are as opposed to what you have is also a potential win here- Erich Fromm posited the question in the 1970s. If you’re rich enough to be reading the Telegraph article and thinking ‘that’s me’ then you have the choice – clearly if you are a single mother working five zero-hours jobs to pay last week’s rent you don’t really have this choice, but that’s a different problem from grizzling that the price of wine and holidays is so expensive these days, dahlink.

Living standards will go down for the middle class – they need to keep an eye on quality of life

One of the problems the middle class seems to have had is they lost their historic values of thrift and deferred gratification. Once upon a time they knew to put money into healthcare and schools before blowing it all on holidays, wine, eating out and going to the movies. The middle class had annuities to look after them when they got old (before those DB pension) because they saved for it, no doubt encouraged to do so by seeing what happened to the poor in the poorhouse. Then they got soft.

Living standards are going to go down because of the shift of power from labour to capital. Mine is, yours is probably. The smart response is to roll with it – because although there’s some correlation of quality of life with living standard, if you deliberately change attitudes to the changes ahead of time you can do more with less, your quality of life need not go down with your lowered living standard. This is because many aspects of quality of life (autonomy and being able to express free will) are not a function of stuff or resources. It won’t be easy but fortune favours the adaptable.

The middle class are locked into the school-university-job loop. It’s broken for the middle classes – an ever increasing money pit that is less and less likely to pay off for the next generation anyway. Mr Money Mustache nails the problem succinctly

It may be that most parents of the very-upper-middle class are still operating from a scarcity mindset. If they are addicted to a high consumption lifestyle, earning $600,000 per year but still making car and house payments, they will assume that their children will need to earn and consume just as much in order to be happy. This of course dictates a job in the top fraction of the top percent of the economy, and education with enough prestige to secure such a job.

There’s a lot of conspicuous consumption in the Telegraph’s list. The school fees etc are all passing on the image of replicating what worked in the past. Fingers crossed that past performance is a guide to future returns despite the rapidly changing world, because if not this is a dramatic misallocation of capital. Above a certain level, quality of life and standard of living are different things. That rings hollow if you’re poor, because it isn’t true for you. But if you’re griping about the price of wine and foreign holidays over the canapes like our DT readers, then you still have choices. Use them well, before you don’t have any choices because you can’t tell the difference between what you want and what you like.

this seems to be a peculiarly UK aberration, I haven’t detected in from US writers for instance ↩

that old ideal cast a long shadow on the ermine, because I did not grow up in a middle class background, I learned some of this from books and inferred from the values of those around me, particularly those at university, who were mainly from a richer background than me. The deal started to fall through in the early 1990s, paradoxically just as Thatcher was defenestrated. This distorted model jammed my vision to seeing what was going wrong. I learned from my mistake – the OODA loop is a description of how to stay on guard against being trapped by a mental model becoming obsolete. There are many assumptions about the modern world that may unravel – and the principle of being able to preserve value in financial instruments and the SWR aren’t immune from that ↩

When I started as a professional electronics engineer in the eighties there was a single VAX computer for circuit simulation accessed by green-screen terminals via 9600 baud serial cables and all the output was in Courier text – shared across the entire facility of a couple hundred people. Most of the time you did your circuit simulation by building it in the lab and measuring and messing with components – I can do all this at the same time on the same machine as writing this now. ↩

I’m not against those that don’t make the bar paying their way as now – if you want a vanity degree or have an insight that you will get a return on investment knock yourself out ↩

harbingers of trouble with capitalism seem to be the destruction of the middle classes that I’m writing about, rapacious consumption of natural resources to produce worthless tat and increasing inequality leading to revolution as the rough trajectory capitalism is on, so it won’t necessarily end better. A capitalist consumer economy needs consumers and rising inequality is running consumers out of town, a process slowed by rising debt. ↩

As a simple example, I admire and am gobsmacked by Early Retirement Guy who had the bad luck to graduate into the credit crunch recession and took the enterprising solution to take off and travel and see if the dust would settle. I left school after the Winter of Discontent, worked as a kitchen porter over the summer and started university in September. Gap years were for rich kids in those days 😉 ↩

Surprise result to the election it appears, well a surprise to the punditry though not necessarily to the odd canny investor 🙂 Shy Tories turned out in force and David Cameron is back in No 10, without the moderating influence of the crybaby Nick Clegg, who marched his party to their greatest success and their greatest doom all in the same action. I had a temptation to go with the headline England goes John Galt but that’s probably taking it a little bit too far, even in search of a decent headline. Why are shy Tories shy? – presumably because of the Scruton doctrine

‘Leftwing people find it very hard to get on with rightwing people, because they believe that they are evil. Whereas I have no problem getting on with leftwing people, because I simply believe that they are mistaken’

Most people pursing financial independence will probably benefit on the finance front relative to other possible outcomes, some of the key items of the Tory manifesto are

Take everyone earning less than £12,500 pa out of Income Tax altogether 1

Now on a technicality pension income doesn’t count as ‘earning’ although it’s subject to income tax, but the Tories probably don’t want to piss pensioners off either. The changes in personal allowance are quite transformational for the value of pension income, particularly when combined with Osborne’s changes. Before the Coalition, the personal allowance was £7,200 – with the best will in the world it’s probably a struggle to live well with an income below that even if you have paid your house off and gotten shot of the kids, whereas according to TFS £10,000 p.a. allows for relative luxuries including a serious consumption of alcohol which is just as well since it appears that pensioners are a bibulous bunch going on regular benders.

I could wish for an end to the theatre of of passing laws to try and embed rises in taxes etc. The whole point of government is to pass laws, and to unmake them, so this is a damn fool waste of parliamentary time. As the old boy Yoda said, do or do not, there is no try. There’s no need for a faux legalistic framework, simply follow your manifesto and don’t put up the specific range of taxes you said you wouldn’t.It’s not like last time, Dave, where you could blame Nick for stopping you implementing Conservative manifesto promises. And let’s face it, you landed the mother of all sucker punches by getting Nick to renege on his no rise in tuition fees 2010 manifesto promise 😉 Nearly all voters have a dog in that race – either their children entering university or their grandchildren

For those working and earning well I guess

we will raise the 40p Income Tax threshold to £50,000

will be sort of welcome, though it’s not such a huge raise on what it was when I was working, unless it interacts with the notably raised personal allowance, in which case the combination is probably a decent lift on what it was five years ago.

And yet the Ermine does wonder if we will get the 1980s back. Let’s have a song

Push the highest rate of tax for a few thousand people to 90 per cent and let the bin-men go on strike. Annoying but not fatal. If you are generally secure, a government can inconvenience you, make you poorer or make you angrier – it can, let’s be frank, be a massive, incompetent, depressing, maybe even immoral pain in the arse – but you, and your family, and your social circle will survive it. It is unlikely that the course of your life will be much different under one government than the next, however diverse their ideas.

By way of contrast, what’s the worst – the very worst – that a government policy can do to you if you’re poor? Food-bank poor? Dependant-on-the- government poor? Well, everything. It can suddenly freeze, drop, or cancel your benefits – leaving you in the panic of unpayable bills and deciding which meals to skip.

I have been lucky enough to have been in the first category, and now is time to tip a hat to Lady Luck, particularly as I came from a working class background, I grew up in a much much poorer Britain but perhaps a kinder one, and particularly one a bit more meritocratic. It’s not all luck – I didn’t spend money I hadn’t earned other than having a mortgage, which I did pay off, and I didn’t have children I couldn’t afford.

I really hope that those £12bn of benefit cuts (can I nominate the £2bn welfare benefits for rich landowners be included in the roster of cuts) don’t give us another roll-call like the 1980s – Brixton, Toxteth, Southall, Lewisham, the Battle of Trafalgar Square. In a narrow sense I will probably be richer with the result of the elections, though there probably isn’t that much in it – I am not rich enough or poor enough to have been in great hazard from any likely government action. But I am fearful – of social unrest. As a student in London I shot grainy images of the soup kitchens under Charing Cross railway arches. That was not the Trussell Trust, but maybe it’s where it is going.

Though I am in good health I am fearful of what will happen to the NHS in the next 30,40 years -I will need a larger emergency fund to deal with that, although at least the fear and loathing that is the US medical system is still some distance away.

The Ermine will become richer soon…

because I am getting older, specifically at some point I will pass the 55 mark and all of a sudden I will get hands on some of my own savings 4. Along with the saying that coffee is there to help me with the things I can do something about, red wine to help with the things I can’t, it is time to look to some of my values. I used to have a CAF card from years ago, but on that fateful day in Feb 2009 when I realised I was going to retire early I shut down all such activities. I have tried to reactivate this, because although I will become richer I will take every step not to pay tax 5. However, even as a non-taxpayer but an investor I do pay some tax, just not very much, in the form of dividend tax credits. There are in fact two great benefits of using a CAF card. The most specific one is that it makes it possible to take advantage of gift-aid and have it recorded and totted up in a way I can see, and presumably print off in evidence should I ever need to for HMRC, along with my dividend tax credits – I can track that I am not over-claiming.

It should be noted that you can only set dividend tax credits in unwrapped accounts against Gift Aid – so ISAs don’t count. However, I have significant unwrapped holdings, and once I get hold of my own savings I will prioritise transferring SIPP money into ISA savings over unwinding capital gains allowances. So I will probably have enough unwrapped dividend tax credits for my relatively modest plans, at least until I become a taxpayer again as a pensioner.

The second benefit is in some ways far greater. The trouble with charities nowadays is that they have adopted many of the traits of business, and in particular once they have your personal details they will pester you shitless with requests for more money, and if you’re unlucky, sell your details to some sort of do-gooding sucker’s list to other like minded sorts. I originally got a CAF card to avoid that malarkey. The Ermine has a simple principle when it comes to charities – unless there’s some sort of return, like with my RSPB membership 6 where it actually does something for me to reveal who I am then I want anonymity. Particularly if it’s a charity that deals with human problems, anonymity is king – don’t call me, I’ll call you, because of this selling of mugs lists.

There’s an election in the offing in Blighty, as it’s been nearly five years since the last one. There’s much hue and cry, although to my eyes less separates the three main parties than there used to, much is about the details and less about the big picture. Some of the big picture stuff is changing, and it’s changing is some pretty rum ways.

Many years ago, in the 1770s in the reign of good ‘ole King George there was a bunch of uppity upstarts in one of the colonies of the Empire that got all het up about paying tax without any say in how it got spent, and their rallying cry was no taxation without representation. They had a point, and the rest is the history of the United States of America, no longer a colony for over 200 years.

Now one of the aims of becoming financially independent is of course to minimise taxes. One of the curious twists of fate in Britain is that it’s much easier to do that when you have money – you can influence how much tax you pay by using pensions and by controlling your income. As a wage slave I was always a PAYE employee, so the main option I used was using pensions, but the ways of controlling your income are much greater for the self-employed. In particular paying yourself in limited company dividends can be a lot more attractive that paying yourself in cash income.

However, a more recent accelerating trend seems to be increasing the personal allowance, which lifts more and more people out of the tax system altogether. Of course they still pay consumption taxes like VAT; another curious twist of fate is that those chasing financial freedom probably pay less of this sort of tax simply because you probably buy less Consumer Stuff.

From a personal point of view, that’s dandy. And yet I do wonder what will happen as this trend increases, and we have a larger and larger number of people represented in elections but who aren’t personally impacted by the grubby costs of all the jam today we would like. Some of this trend is simply the results of increasing inequality of income and wealth, of course – if the 1% own 99% of the wealth and most of the income then it isn’t surprising that most of the tax revenue comes from a smaller tax base. Although I don’t agree with all of his conclusions, I think the Torygraph’s Jeremy Warner makes an interesting case in his article about the tax and benefits system –

it also makes the government dangerously reliant on those with increasingly less direct interest in what the money is actually spent on, the more so given the growing focus on pensions, health care and other welfare entitlements. The contributory principle in taxation has all but disappeared. By progressively raising the tax-free allowance, the Coalition has turbo-charged this process of disassociation between revenue providers and users.

Contrast this with the situation when the Ermine started work in 1982. Ignoring university infill summer jobs and suchlike, this was my first real job, a junior test engineer lining up electronic sensor heads. I was intrigued to find that after compensating for inflation it paid better than the average wage is now. However, the personal allowance in 1982/83 was shockingly low – £1565, so most of that salary was taxable, and the basic rate of income tax was 30% with an additional ~9% national insurance. The young Ermine paid nearly 40% tax/NI on a higher proportion of his salary at the beginning of this career than the 2006 higher-rate taxpaying Ermine.

People in those days were much more involved in the costs side of the tax and spend equation than they are now – if the personal allowance goes up to £15,000, which of course I am all for, personally :), then a typical two-person household earning the average UK household income of £27,000 need not pay any tax at all if they both earn roughly half. The whole tax/spend/representation thing is very different to how it used to be. Perhaps the argument is that inequality has gone up and so this is inevitable.

Inequality has risen since 1982

There’s some support for that argument in the change in GINI coefficient since 1982, unfortunately although the figures show inequality has increased I have no feel for how significant a shift from ~33% to ~37% actually is.

Maybe representation without taxation is just what you get as power shifts from labour to capital. I figure it’s going to lead to some strange places at times. It’s easy to make the case to no taxation without representation. I’m not so sure the other way round won’t have difficult birth pangs of its own…